Turnaround Bright Eyes

The market has sensed blood and believes that all that stands between it and the Holy Grail of untold profits is the final demise of the Euro. The Knights, or "wolf pack" as Mr T and the Single A team prefer to call them, are massing for the final assault. It looks a cinch. However there are few clues that this bunny may not be as frightened as we would like to think. Perhaps care should be taken.

Last weekend we saw the press hit the nitro-boost on the Europhobic stories:

  • Sunday Times: "Euro heads for parity with dollar".

  • FT: Germans lead gold rush frenzy - Greece considering legal action against US banks (for shorting CDS etc).

  • Merkel: "Bailout has bought only time, not a solution".

And though it is not in the class of the ultimate Tabloidometer, the Economist, last week's Newsweek front cover was a Euro splash:

And despite all of this the Euro rallied yesterday. And it did so of its own accord as well. Even against its normal high beta risk buddy the Aussie Dollar. But then, the AUD itself is looking sick on many cross measures, with the worries of a China slowdown, the RBA in the 8th innings of its hiking cycle and the Henry tax making life difficult if you dig for a living. And of course, most of the good news is in the price. Lets sprinkle in a couple of other ingredients to the cauldron - a ZEW that was nowhere near as bad as the market had started guessing just before its release based on the Sentix correlations. A Doji on the SPX. Soothsayer technicals, daily and weekly, in EUR/USD. Record IMM shorts in the EUR, as well as seemingly everybody in every type of investor class, using the Single Currency as a hedge (and as we all know, if you want a hedge, go to a garden centre). The ECB's USD 84-day Open-Market Operation only attracting $1bn of demand (hold on a minute, wasn't there supposed to be a liquidity crisis?!). And finally, the most worrying indicator of all is that European officials have gone eerily quiet. Either they have finally learnt that "Silence is Golden" or they have some cunning plan. Hopefully more cunning than Baldrick's Bullet...

The other alternative is that of course they have absolutely no plan whatsoever and they have run away. Which is what the Knights may have to do if the Euro Rabbit turns out to be a killer.

If, however, the Knights have their way and slip past the rabbit we may have a new version of OMD's anthem "Enola Gay" to sing...

Mister Trichet , you should have stayed at home yesterday.
A-ha words can't describe, the feeling and the way you lied.

These games you play, they're gonna end it more than tears someday,
A-ha Mister Trichet , it shouldn't ever have to end this way.

It's 12:45, and that's the time that you've always tried.
We got your message on the radio , things abnormal and extending the loan.

Mister Trichet , is Europe proud of ECB today?
A-ha these cuts you give, they never ever gonna fade away,

Mister Trichet , it shouldn't ever have to end this way,
A-ha Mister Trichet, Euro fades in our dreams away?

It's 1.30, and that's the time you will deny QE .
We got your message on the radio, things abnormal , there's some way to go.

Mister Trichet , is Europe proud of ECB today ?
A-ha Liquidity, it ain't ever ever gonna drain away………………………………

(London times apply)

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Click here for comments
May 18, 2010 at 3:14 PM ×

Great post! In fact all the posts over the last few days have been high quality. Glad to see this blog isn't going away with the departure of our dear MM.

May 18, 2010 at 4:01 PM ×

Hi Jon and all of you who have very kindly made encouraging noises over the past few days.

cpmppi and I are fully aware of the humongous burden we and all future contributors carry and without going into a clawing humility to Macroman himself, we know our place in the world. Like all of you, we don't want to see the site die, but we are also followers of the Hippocratic Oath and "will not strive officiously to keep alive" should it reach a vegetative state. Your comments and feedback are hugely important and lets hope we can entertain the same debate in the comments column as MM did in his "Golden Age".

Polemic and cpmppi


May 18, 2010 at 4:24 PM ×

citing the story abt the euro going to par wrt usd is NOT europhobic in the geopolitical sense, but rather europhilic since that fx rate will HUGELY stimulate all groups that export from the eurozone...but i'll admit that the same label being used for the currency as the geographic region is a tad confusing - perhaps leave euro for fx and refer to europe as franco-germania? a modest proposal indeed....

May 18, 2010 at 4:27 PM ×

Bloomberg creates CRISIS page...

BusinessWeek moment?

May 18, 2010 at 5:09 PM ×

Frank ,

Yes I apologise for any confusion. "Europhobic" was meant as "euro-thecurrency-phobic" rather than any reference to the geographical region, policies, characters or individuals whether real or imaginary, as they say. Despite the confusing labelling on the tins.


May 18, 2010 at 5:44 PM ×

GS & MS main Eur risktakers of similar opinion and lightened up/flat which seems very much in line with buyside discretionary a/c. Systems continue to run their turboshort but would argue positioning in spot/vanillas cleanest its been for a while although obviously rkos etc still held.

Can't see any bounce being particularly pronounced due to above, would love to see 1.27 to scale back in but that may be wishful thinking unless another bazooka is unleashed.

May 18, 2010 at 7:35 PM ×

The media did so damn well from the apocalypse trade that they just don't want to give it up - neither they nor their clones, the wide circulation blogs (we know who they are).

Unfortunately, they take on the aspect of the One True Truth when their diet becomes reduced to one single target. (Whatever happened to the CRE crash, btw?). It's time the herd of ambulance chasers packed it in and went back to whatever it is they were doing before the world ended.

You guys are doing a fine job, however. You can stay.